What planet is this guy from?

http://www.eyeblast.tv/public/checker.aspx?v=hdkUnzuzkU

MARK SHIELDS: I think the President's task right now is compared to the situation the nation is comparable to a subway train that has stopped suddenly between two scheduled stops and the lights go out. And what the American people are looking for just as the passengers on that train are looking for is a voice that comes on and says, "This is what happened, this is what's being done about it, and this when we are going to get out." And, I mean, just the simple fact that more jobs in the private sector have been created in this year, 2010, this terrible year, then were created in the eight years of George W. Bush's administration is something to think about and to mention.

Dr. Keynes killed the patient

http://www.realclearmarkets.com/articles/2010/08/20/dr_keynes_killed_the_patient_98632.html

American consumers are trying their best to deleverage. In terms of the story, the patient is actually trying to lose weight. But the government is blocking deleveraging and trying to boost consumption. They are forcing food down the patient's throat. According to the Flow of Funds Report, households reduced debt at a 2.4% annualized rate ($330 billion) during Q1 of 2010. Meanwhile, the federal government was piling on debt at an 18.5% annual rate ($1.44 trillion). Since every dollar of government debt is a promise to tax the private sector in the future with interest, this public spending spree effectively negated the Herculean efforts of the private sector to return to a sustainable path.

That's where the arrogance of Washington is really apparent. Scores of millions of American consumers have made the decision that reducing their debt burden is in their best interests right now. But a few hundred individuals in government believe they know better than the collective wisdom of the entire free market. By leveraging up the public sector, they have used their power to confiscate our savings. In short, they are forbidding us from following the common sense path to fiscal health.

CEO's rank California dead last

California is killing the manufacturing industry according to a survey among CEO's.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=532309

Asked to rank states by business climate, CEOs put California dead last. Texas was No. 1.

• "Texas is pro-business with reasonable regulations while California is anti-business with anti-business regulations."

• "California is terrible. Even when we've paid their high taxes in full, they still treat every conversation as adversarial. It's the most difficult state in the nation. We have actually walked away from business rather than deal with the government in Sacramento."

• "The leadership of California has done everything in its power to kill manufacturing jobs in this state. If we could grow our crops in Reno, we'd move our plants tomorrow."

• "State politics seem consumed with how to divide a shrinking pie rather than how to expand it."

• "Union density is increasing, contrary to national trend, from 16.1% of workers in 1998 to 17.8% in 2002."

• "Unfunded pension and health care liabilities for state workers top $500 billion and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade."

California's long-term job losses are downright ugly. Since 2001, while politicians dither and spend, 634,000 factory jobs have disappeared along with 34% of the industrial base. From 2003 to 2007 alone, according to the Milken report, 79,000 jobs were lost due to excessive regulation and too-high taxes.

But if California's private companies are suffering, its public sector sure isn't. From 2001 to 2009, California lost 235,000 net private-sector jobs, but gained 163,700 government jobs. Those cushy union jobs also pay more than comparable private jobs and provide gold-plated benefits. Now Californians find they actually have to pay for this foolishness.

Crime does pay

California is sinking

California is sinking...but it's not into the Pacific Ocean. It is collapsing due to the collective weight of unfunded liabilities from public employee pension costs. Even the most liberal California politicians agree on this.

http://online.wsj.com/article/SB10001424052748703699204575017182296077118.html

Former Assembly Speaker Willie Brown, a well-known liberal voice, recently wrote this in the San Francisco Chronicle: "The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life. But we politicians—pushed by our friends in labor—gradually expanded pay and benefits . . . while keeping the job protections and layering on incredibly generous retirement packages. . . . [A]t some point, someone is going to have to get honest about the fact."

State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."

Redemption suspension

The words "suspend redemptions" evoked panic and fear in hedge fund investors in 2008 after Lehman Brothers collapsed. Insolvent hedge funds had to delay investor demands for redemptions because they lacked access to liquidity during the financial crisis. A credit freeze ensued, and no one trusted their counterparties who were equally insolvent.

Fine, hedge fund investors are allegedly savvy and required to understand the outsized risks and rewards of investment in hedge funds. An accredited investor needs to have a minimum income of $200,000 and a minimum net worth of $1 million, but most have income and net worth levels much higher than the minimum thresholds. They understand "high risk/high reward"--at least they're supposed to.

But the latest financial reform being pushed by the Obama financial team "to protect consumers" includes the following language: "suspend redemptions to allow for the orderly liquidation of fund assets." This clause is in direct conflict with Securities Exchange Commission (SEC) Rule 2a-7, which provides minimal risk, no volatility, and redeemability for money market funds. In other words, when the average Joe parks his money in a money market account, he expects miniscule interest earned, in return for the safety and liquidity of funds being instantaneously accessible via a computer keystroke or a visit to the bank teller.

What this "financial reform" clause does is allow financial institutions to NOT guarantee your request for cash withdrawal if financial markets are collapsing. In other words, how "safe" is your cash if you can't even access it in times of financial distress--or when there's a run on banks?

This is the same SEC which is chartered to protect investors from unscrupulous swindlers and regulate free, orderly markets. Given their dismal track record of protecting investors from the likes of Ponzi schemers Bernie Madoff and Allen Stanford, it should come as no surprise that savers and investors will become incredibly vulnerable should the next financial iceberg hit again.

More misleading government statistics

The Department of Commerce released Gross Domestic Product (GDP) growth statistics last week for the 2nd quarter ending June, and the numbers came in at "only" a 1% contraction, in contrast to the 1st quarter number which came in at a disastrous 6.4% decline. The contraction was smaller than what the Street expected, so markets rallied and the "green shoots" optimists came out celebrating that the recession had ended. The "getting less bad" argument was gaining traction. A couple thoughts gave me pause:

1) this GDP growth number is still negative. Sure, it's not AS negative but it still is negative. And since unemployment is a lagging indicator for economic growth, even if we are on our way to recovery, employment growth won't occur until 2010--at the earliest.

2) this aggregate number doesn't tell the full story. While overall GDP growth was only slightly negative, the private sector has experienced a much bigger decline. Why? Because all of the growth came from federal, state, and local government spending. The public sector is crowding out the private sector--the true engine of economic growth. More federal government employees were hired, while private industry was still laying off employees. That is not a long-term plan for success.

So while the GDP numbers were slightly encouraging (if still negative), I wouldn't start celebrating just yet. Meanwhile, I'm still long the market, but as soon as Congress returns from their summer recess later this month, I have a feeling Mr. Market will take away the punch bowl. Markets like it when Congress is not in session--they can't muck it up when they are idle.